@edsnova- have you tried carbide drill bits? They're expensive, but what I had to buy when drilling holes in hardened transaxle parts. Cobalt wouldn't as much as mark the side of a gear. One thing to note- they are brittle. When drilling through surface hardened gears (the hardening was a 30- .040" layer) I broke 3 bits when transitioning from the relatively soft middle to the other side. Up here a good carbide 1/8" bit is just over $20 (broke 2) and a 1/4" bit is well over $50 (only broke 1 but you can still guess how loud I yelled "F*&%K!!!!") but they're the only way to make holes in hardened steel.
The sides were cut with ceramic inserts; again, the only thing that would last.
